Trade turmoil wipes out a chunk of the stock market's recent rally

The Dow closed just 66 points lower on Monday, recovering from a plunge of as much as 471 points. The S&P 500 and Nasdaq also erased their sharp losses, ending just 0.5% lower. The comeback signals investors don’t believe President Donald Trump’s surprise threat to impose higher tariffs on China will spark a painful deepening of the trade war. Optimists are even hoping an historic trade deal will still be reached. “It’s not unusual for a dealmaker to threaten to walk away — just before the deal gets done,” said Ed Yardeni, president of investment advisory firm Yardeni Research. Monday is just the latest time that US stocks have recovered from an early morning plunge. In fact, the S&P 500 managed to close higher during half of the prior eight times it plunged 1% or more at the open, according to Bespoke Investment Group. “It would be a real surprise if this does more than delay an agreement that both sides still seem to want,” Christopher Smart, Head of Barings Investment Institute, wrote in a note to clients. ‘Shocking escalation’ The rebound keeps intact much of the stock market’s blockbuster gains this year. The S&P 500 remains 17% higher in 2019, while the Nasdaq has soared 22%. “I’m expecting a deal within the next few weeks, if not sooner. The Chinese need a deal. We need a deal. We’ve come too far,” said Yardeni. Still, the return of Tariff Man, as Trump has called himself, undoubtedly caught investors off guard. The VIX volatility index spiked as much as 46% to the highest level since January before retreating. It ended the day up nearly 20%. The CNN Business Fear & Greed Index briefly slipped into “neutral” territory before closing back in “greed” mode. Trump’s tweet was shocking because